Broker snap: Nomura resumes coverage of BHP at buy

28th Nov 2011 11:45

Analysts at Nomura have this morning published a research note highlighting how, in their opinion, fear has provoked a divergence between investor sentiment and mining valuation fundamentals.Thus, they argue that mining equities are already pricing in further falls (in commodity prices) and that volatility in those same commodity prices has been due to eurozone debt and Chinese slowdown concerns, but that prices have not collapsed.As well, miners are producing at capacity -which often makes for better financial performance in companies- and are trading at similar valuations to those seen during the lows of the global financial crisis. More specifically, they are now trading at 0.6 times their net present values and at 'enterprise value/EBITDA' ratios of approximately 4.0.Their balance sheets, however, have now been repaired and there are "growth catalysts on the horizon."Nomura also states that, "iron ore and copper remain structurally attractive in the short term," yet adds that, "challenges remain with regard to delivery and the market continues to underestimate supply side risks."Hence the decision by Nomura to resume coverage on BHP Billiton and Rio Tinto at buy. The broker has raised its price target on BHP (to 2,500p from 2,400p), but lowered those for Xstrata (to 1500p from 2,200p), ENRC (to 750p from 950p) and Glencore (to 450p from 550p). Lastly, it describes Glencore and ENRC as being its "least preferred -GLEN and ENRC are expensive with higher risks," the broker says. AB